20150102-巴黎银行证券-Dual-speed_bifurcation_bottoming_out_64页_1mb

China Real Estate: Dual-Speed Bifurcation Bottoming Out

Core Content

This report from BNP Paribas Equities Research analyzes the state of the Chinese real estate sector in 2015, highlighting the impact of policy support and market dynamics on property prices and transaction volumes. The report suggests a "dual-speed bifurcation bottoming out" scenario, where some cities recover faster than others.

Main Trends and Predictions

• Policy Support:

  • The 40bp rate cut in November 2014 and further expected rate cuts and RRR reductions are anticipated to improve liquidity and support the property sector.
  • Additional measures include relaxing provident fund usage, exempting business taxes, and partial relaxation of HPRs (purchase restrictions) in Tier 1 cities.

• Transaction Volumes:

  • Nationally, transaction volumes are expected to remain flat to moderately down (0 to -5%) in 2015, compared to -9% in 2014.
  • However, 20-30 cities could see double-digit growth in transaction volumes, with prices trending upward in the second half of 2015.
  • The report highlights a two-speed recovery, with only certain cities showing improvement due to healthier supply-demand dynamics.

• Supply Imbalance:

  • New land sales in the top 100 cities fell by 16-51% in 2014, and even in the 43 "good cities" with no oversupply, land sales dropped 36%.
  • Oversupply remains acute in most cities and may take two to three years to resolve.
  • A gradual unwinding of supply imbalance is expected, with some cities experiencing moderate price increases in 2H15E.

• Sector Valuation:

  • The sector view has turned bullish as a partial bottoming out is anticipated.
  • Two key valuation trends are expected:
    1. A moderate increase in the valuation range.
    2. A narrowing of the valuation range, with lower-end P/E stocks re-rating and outperforming more fully valued stocks.

• Outperformers:

  • Mid-sized developers with good landbanks in "good cities" are expected to outperform.
  • Top picks include Shimao Property, Guangzhou R&F, and KWG Property.
  • Country Garden and Longfor Group are upgraded to BUY, with target price increases of 12.6% and 11.6% respectively.

Key Information

• Policy Measures Expected in 2015:

  • Two more 25bp symmetric rate cuts.
  • Three RRR cuts.
  • Further relaxations on provident fund usage.
  • Partial relaxation of HPRs in Tier 1 cities.
  • Exemption of business tax for properties held less than 2 years and a reduction in capital gains tax to 20% from 20%.

• Market Dynamics:

  • Transaction volumes in selected "healthier" cities have recovered gradually post-rate cuts.
  • The report notes that the impact of the current rate cut is milder compared to previous episodes in 2008 and 2012.

• Cities with Potential Price Growth:

  • 27 cities are identified where property prices are expected to rise moderately in 2H15E.
  • These cities meet specific criteria such as no oversupply, net inward migration, and population-to-transaction volume ratios.

• Land Sales and Costs:

  • Land sales volume in the top 100 cities fell significantly in 2014.
  • Land cost growth varies by region and city, with some cities showing positive trends.

Risks to Target Prices

• The report acknowledges that the recovery may not be uniform across all cities.
• Oversupply in many cities could delay price increases.
• The effectiveness of policy measures may vary, and continued volatility in transaction volumes is possible.

Recommendations

Company	BBG Code	Rating	Share Price	Target Price	Upside/Downside
Guangzhou R&F	2777 HK	BUY	9.49	13.86	+46.0%
KWG Property	1813 HK	BUY	5.31	7.50	+41.2%
Shimao Property	813 HK	BUY	17.34	21.97	+26.7%
China Overseas Land	688 HK	BUY	23.05	26.65	+15.6%
Country Garden	2007 HK	BUY	3.10	3.49	+12.6%
Longfor Group	960 HK	BUY	9.99	11.15	+11.6%
CR Land	1109 HK	HOLD	20.45	19.56	-4.4%

Conclusion

The report concludes that while the property market in China is still facing challenges, there are signs of a partial bottoming out, particularly in Tier 1 and some Tier 2 cities. Developers with strong landbanks and good market positions are expected to benefit from this trend, with specific companies recommended for investment. The recovery is expected to be two-speed, with some cities seeing stronger performance than others.